Legislature(2005 - 2006)CAPITOL 124
06/01/2006 09:00 AM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB2004 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB2004 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
June 1, 2006
9:03 a.m.
MEMBERS PRESENT
Representative Jay Ramras, Co-Chair
Representative Ralph Samuels, Co-Chair
Representative Jim Elkins
Representative Carl Gatto
Representative Gabrielle LeDoux
Representative Kurt Olson
Representative Paul Seaton
Representative Harry Crawford
MEMBERS ABSENT
Representative Mary Kapsner
OTHER LEGISLATORS PRESENT
Representative John Coghill
Representative Mark Neuman
Representative Ethan Berkowitz
COMMITTEE CALENDAR
HOUSE BILL NO. 2004
"An Act relating to the Alaska Stranded Gas Development Act,
including clarifications or provision of additional authority
for the development of stranded gas fiscal contract terms;
making a conforming amendment to the Revised Uniform Arbitration
Act; relating to municipal impact money received under the terms
of a stranded gas fiscal contract; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB2004
SHORT TITLE: STRANDED GAS DEVELOPMENT ACT AMENDMENTS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
05/31/06 (H) READ THE FIRST TIME - REFERRALS
05/31/06 (H) RES, JUD
06/01/06 (H) RES AT 9:00 AM CAPITOL 124
WITNESS REGISTER
BONNIE HARRIS, Assistant Attorney General
Oil, Gas and Mining Section
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Introduced witnesses.
KEVIN JARDELL, Legislative Liaison
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 2004.
JOE DONAHUE, Staff
Preston, Gates and Ellis, LLP.
Anchorage, Alaska
POSITION STATEMENT: Presented HB 2004.
JIM BALDWIN, Counsel
Office of Attorney the General
Juneau, Alaska
POSITION STATEMENT: Presented HB 2004.
DAVE VAN TUYL, Commercial Manager
Alaska Gas Group
BP Exploration (Alaska) Inc.
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 2004.
WENDY KING, Director
External Strategies
ANS Gas Development
ConocoPhillips Alaska, Inc.
POSITION STATEMENT: Answered questions regarding HB 2004.
PATRICK COUGHLIN, Senior Counsel
BP Exploration (Alaska) Inc.
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 2004.
ACTION NARRATIVE
CO-CHAIR RALPH SAMUELS called the House Resources Standing
Committee meeting to order at 9:03:07 AM. Representatives
Gatto, Olson, Seaton, Ramras, and Samuels were present at the
call to order. Representatives Elkins, LeDoux, and Crawford
arrived as the meeting was in progress.
HB 2004-STRANDED GAS DEVELOPMENT ACT AMENDMENTS
CO-CHAIR SAMUELS announced that the only order of business would
be HOUSE BILL NO. 2004, "An Act relating to the Alaska Stranded
Gas Development Act, including clarifications or provision of
additional authority for the development of stranded gas fiscal
contract terms; making a conforming amendment to the Revised
Uniform Arbitration Act; relating to municipal impact money
received under the terms of a stranded gas fiscal contract; and
providing for an effective date."
9:03:40 AM
BONNIE HARRIS, Assistant Attorney General, Oil, Gas and Mining
Section, Department of Law, introduced witnesses.
9:04:17 AM
KEVIN JARDELL, Legislative Liaison, Office of the Governor, said
HB 2004 contains the necessary amendments to bring the contract
to the legislature, providing the legislature the opportunity to
"make the policy call" on moving forward with the direction the
governor outlined in the contract. He noted that in 1997 a task
force was created by the legislature which recommended a
stranded gas act that would allow negotiations with "sponsor
groups to give special tax breaks and other considerations to
bring our North Slope gas to market." He said in 2000 and 2003
the legislature amended the act, recognizing market conditions
and changes within gas pricing, economics, and to make the
pipeline more feasible. Amendments currently before the body
are "just the latest step in recognizing that changes need to be
made to the Stranded Gas [Development] Act to recognize and give
authority to meet those economic conditions to bring our gas to
market." He said the state has recognized that some things were
necessary "to bring the gas to market." He added, "We
acknowledged all along that amendments would have to be made to
the Stranded Gas [Development] Act to allow this authority." He
said amendments that the committee has read were very specific
because the administration "did not want to hide the ball; this
wasn't a game. This is a necessary step to commercialize the
gas." He said those amendments were in the packet for the
committee, but the legislation that is being introduced is
broader in scope than the original Stranded Gas Development Act
(SGDA) amendments as released in the fiscal interest finding.
9:07:53 AM
MR. JARDELL said, "That was done after a great deal of
consultation with attorneys and looking at the purpose" of the
SGDA. He said it is necessary for the administration to have
broader authority in order to respond to the public and the
legislature. He stated, "The legislature, by statute, has told
the administration that they are to take the input from the
public, take the input from the legislature, and go back in with
the sponsor group and negotiate changes that they believe are
necessary." He said that "going to a broader perspective will
give us the authority to respond to the public, respond to the
legislature, and be able to have that authority to negotiate
changes." He noted that that is why the latest amendments are
broader in scope and provided to the legislature "so that you
would have a clear understanding of what parts of the contract
we believe we need authority under the stranded gas act to
pass." He said it is necessary to make these changes to have
the authority to progress the contract to the point of
renegotiating potential terms after public and legislative
input, "and then ultimately to provide that contract to the
legislature for their decision on the policy as to whether or
not we go forward."
9:10:10 AM
REPRESENTATIVE LEDOUX asked Mr. Jardell if by saying "to
progress the contract" he meant signing the contract.
MR. JARDELL explained that as the administration went through
the negotiation process "we recognized that in order to complete
a draft contract and get it to the public...that we were going
to have to negotiate terms that may be outside of the stranded
gas act and some that we knew were outside the stranded gas act
contract. Those portions we have acknowledged from day one that
we knew that we would have to come back to the legislature to
get authority...to have those provisions comply with the
stranded gas act. And so, again, we have acknowledged that all
along; we knew we would have to come back to you, and so that is
what we are doing today." He said the progression is listening
to the public and the legislature, so the administration can
make changes and present them to "the policy makers of the state
to say, after, since 1998, the stranded gas act amendment, the
goal, here it is. Here's the negotiated agreement. Do you want
to go forward or not? And to get to that point where you have
that opportunity to make that decision we need to pass this
legislation."
9:12:32 AM
REPRESENTATIVE LEDOUX asked if this legislation was necessary to
progress the contract and to negotiate the terms, then why it
couldn't have been done earlier.
9:13:07 AM
MR. JARDELL said it has been a long process, and it is difficult
to know what to change until the final product is known,
"because everything is in flux until you're done." He said the
administration recognized that it would need amendments and that
it would have provisions in the contract that were not currently
authorized under the SGDA.
REPRESENTATIVE GATTO asked the meaning of "economic conditions."
9:14:40 AM
MR. JARDELL said the economic conditions included "every
possible hypothesis of what could happen going forward and
trying to narrow that down to your best judgment and
predication," including what is best for Alaska. He said the
discussions and decisions must be made by the legislature, and
"this is a necessary step to really get that to you so you have
the opportunity to hear and weigh in and decide after the final
contract has been renegotiated--is this the step that we want to
proceed on?"
9:15:46 AM
REPRESENTATIVE GATTO noted that Mr. Jardell's definition of
economic conditions is very broad and not based solely on
current conditions, and he said he would expect it would have
been done a year ago if the conditions are based on the future.
He said he wanted a "specific reference as to what you meant by
meeting economic conditions and if you meant the price of gas,
if you meant the arrangement of the specific numbers in the
contract, or what?"
MR. JARDELL said one thing to move the contract forward was "the
state's ownership interest. That was one of the things that we
did based on our economic research that we determined to make
this project a go, that we were going to have to take 20 percent
ownership of the line, and take our gas in kind." That is one
things the administration weighed the economics on, he stated.
CO-CHAIR RAMRAS said that after the public comment period ends
on June 23, there is a 30-day period for the administration to
synthesize the information, and he asked about the next step in
the process.
9:17:59 AM
MR. JARDELL said that under the SGDA the legislature directed
the administration to negotiate the draft contract to present to
the legislature and the public. He stated that after that, the
commissioner of revenue will review all comments. He said if
there are terms that need to be renegotiated, the commissioner
will need to renegotiate with the sponsor group and "try to make
those changes." He said he thinks the time frame is up to 30
days to renegotiate those terms. If an agreement is reached,
the administration will present a final contract to the
legislature to decide to move forward.
9:19:17 AM
CO-CHAIR RAMRAS asked if there is a required period of time
after the public comment period to "put everything together, or
does it happen concurrently?"
CO-CHAIR SAMUELS said he believes there is no timeline after the
public comment period and the renegotiation. The administration
can take as much time as it needs; it isn't required to come
back with a contract at any specific time, he added.
9:20:18 AM
MR. JARDELL said Section 43.82.430 states that the commissioner
of revenue shall make a decision within 30 days after the public
comment period. One decision could be that "we're not going to
go forward with the contract because we cannot achieve an
agreement or meet the terms that we think are-that have been
expressed by the public." He read:
[The commissioner] shall prepare a summary of the
public comments received in response to the proposed
contract, the preliminary findings, and determination.
(2) After consultation with the commissioner of
natural resources, if appropriate, and with the
pertinent municipal advisory group established,
prepare a list of proposed amendments, if any, to the
proposed contract that the commissioner of revenue
determines are necessary to respond to public
comments. (3) Make final findings and a determination
as to whether the proposed contract and any proposed
amendments prepared under this subsection meet the
requirements and purpose of the chapter...After
considering the material described in this section,
securing the agreement of other parties, the
commissioner determines that the contract is in the
long-term fiscal interest of the state, the
commissioner shall submit the contract to the
governor, and then state a commissioner's final
findings and determination under (a) of this section.
9:21:44 AM
CO-CHAIR RAMRAS noted that the public comment period will be
over on June 23, and he surmised that by July 22 or sooner there
shall be a contract to the legislature in a final form.
MR. JARDELL said that is a fair interpretation.
9:22:31 AM
JOE DONAHUE, Staff, Preston, Gates and Ellis LLP, stated that
"most of the amendments in the first part of this bill are
driven by two major policy decisions that the state made during
the course of the negotiations." Those are to have the state
become a full commercial partner in "this project" and "taking
royalty in kind; production tax payments in kind, and also
taking full responsibility for the marketing and shipping of the
gas over the line by committing to a firm transportation
commitment on the pipeline itself. The other major policy
decision that is still in process is the decision to extend oil
fiscal certainty to the producers and that includes the pending
discussions surrounding the PPT [profits-based petroleum
production tax]. It includes the payment in lieu of taxes for
oil production and oil pipeline transportation property. And it
will include the oil income within the corporate income tax PILT
[Payment in Lieu of Taxes] in the proposed fiscal contract."
9:25:25 AM
MR. DONAHUE said Section 1 repeals a statement from existing
law. "We recommend...the language relating to without
significantly altering tax and royalty methodologies. This,
again, ties in with the discussion about the enactment of a PILT
for the production tax that would be incorporated into the
final...if the PPT is enacted in that fashion."
REPRESENTATIVE SEATON said he is concerned with the statement on
page 1, line 10, "authorizing establishment of fiscal terms
related to oil and gas agreements and taxes". He said other
statements similarly appear in the bill to give the commissioner
the ability to modify oil taxes that the legislature would
create in the PPT. He said a basic and fundamental question of
HB 2004 is allowing the commissioner to change the oil and gas
tax structure.
9:27:47 AM
MR. DONAHUE said HB 2006 allows the administration-subject to
the approval of the legislature-to include oil PILTs in the
contract. He said it would apply to all types of taxes: oil and
gas, production income, and property taxes. He added, "To the
extent that there is authority to modify the oil taxes, that is
inherent in the initial underlying SGDA, in that a PILT would be
designed to minimize disputes between the parties and provide
certainty of payment over time, and might not reflect the actual
methodologies that are enacted in statute." He said that is
seen throughout the proposed fiscal contract discussing the gas
pipeline issues, the upstream cost allowances, the upstream
facilities payment, and the PILTs that are payable by the
mainline entities and the midstream entities. He stated that
these are property taxes and in lieu of property taxes. The
instructions on those types of taxes, within the SGDA, try to
level the imposition of the tax and avoid the front-end impacts
of some of the property tax methods "and provide certainty to
the local political subdivisions and certainly to the state. So
there is authority to incorporate the existing tax structure
into the contract and to modify some of it."
9:29:43 AM
CHAIR SEATON asked, for example, if the legislature passes a
production tax of 22.5 percent, can the commissioner incorporate
a 20 percent tax into the contract.
CHAIR SAMUELS said he would assume that any tax rate can be put
into the contract but then the legislature has to approve it.
MR. JARDELL said the commissioner cannot change the law, but the
legislature can if it approves the contract. "However, if you
pass a PPT at 22.5 [percent] or 17, then yes, we could still
negotiate terms into the contract that are different than what
you ultimately pass in the PPT...with or without this bill.
That would be dependent on the legislature's adoption of that
contract." He said that would actually be the legislature
passing a new law for a new tax.
9:31:37 AM
REPRESENTATIVE SEATON said, "But without this you are not able
to negotiate oil taxes or incorporate oil taxes under your
statutory provisions?"
MR. JARDELL said, "The stranded gas act is unclear as to whether
or not you can do fiscal certainty on oil. The minutes reflect
a clear intention by the legislature that oil not be
incorporated. That's why we have always decided that we need to
come to the legislature and make sure the legislature gives us
that authority, and that we're not going to play games with
parsing out words in the stranded gas act, but the fiscal
certainty on oil is different than what we could propose to you
in a statute to say just change the oil tax. I think we still
could move forward and say we think the legislature should adopt
a 20/20 tax. I don't think we would need this legislation to
propose that."
9:33:00 AM
REPRESENTATIVE LEDOUX said if the legislature passes an oil tax
and then ratifies the contract with the same tax, "would the
executive branch, then, as a result of the terms in this bill,
be able to modify the terms of the contract without going back
to the legislature for subsequent ratification of
modifications?"
MR. DONAHUE said the statutory authority in this bill is a
platform for achieving two goals. One is "to t-up this fiscal
contract for the legislature's full debate and deliberation.
There can be no modifications via this contract absent the
ratification or the authorization act subsequently by the
legislature." Changing the production tax can be dealt with
"when it comes time to approve or disapprove the authorization
act which gives the governor the authority to sign the contract,
and without which the contract won't be signed."
9:35:17 AM
CO-CHAIR SAMUELS put forward another example of passing a PPT
with a tax rate of 22.5 percent, which gets put into the
contract. He asked if in 10 years, the new governor is able to
lower the tax rate without coming back to the legislature to re-
ratify the terms.
MR. JARDELL answered that "the commissioner cannot, by himself,
bypass the legislature" by changing the tax rate. He said if he
is wrong, he will get back to them.
9:36:36 AM
REPRESENTATIVE LEDOUX asked if other things in the contract can
be changed unilaterally. She noted that the gas pipeline
contract is the most significant thing that the legislature will
ever do, but "aren't most contracts simply an executive
function?" She asked what would prohibit modifications.
MR. JARDELL said the executive branch operates within the
authority provided by law. The authority being given is only to
the degree that the legislature ratifies the contract, but it is
different than most contracts, he said.
9:37:59 AM
REPRESENTATIVE CRAWFORD said his worst fears of the profit-based
oil tax is that it will be a lawyer's heaven and an accountant's
nightmare, producing state revenue well under what is expected.
He asked if that happened, "could we go back and change the
contract?"
MR. DONAHUE said he thinks if the PPT was rolled into the
contract, those provisions would be locked in for 30 years, but
if the issue is egregious, the state could try to renegotiate
the contract with the oil producers if they were amenable.
9:40:07 AM
MR. DONAHUE said Section 1 of the bill "is related to making it
clear that fiscal certainty can be granted on the oil side. The
original SGDA dealt with providing fiscal certainty on gas
issues and on activities related to the specific project. This
language makes it clear that it's related--that the fiscal
certainty terms are related to the parties-the qualified
sponsors-and all of their qualified oil and gas business
activities in the state." In paragraphs (1) and (2), the
concept of a related party is introduced, which is defined in
Section 16 of the bill as an affiliate of a qualified sponsor
that owns part of the project and is an intended beneficiary of
the fiscal certainty terms. He said this concept refers to "the
LLC, the mainline entity LLC, the GTP [gas treatment plant]
entity LLC, and other LLCs that are formed within the state to
own and operate the [gas] transmission line." It is meant to
include entities "that are not specifically mentioned in the
original Stranded Gas Development Act."
MR. DONAHUE said Section 2 "expands the topics that can be
addressed in the fiscal contract." It again mentions "related
party and we have a repeal of language relating to the approved
qualified project under this chapter." He said this is to
clarify that fiscal certainty can be applied to oil and existing
infrastructure, and not just for the new project.
9:43:56 AM
MR. DONAHUE said the original section provided the revenue
commissioner the authority to amend the notice and timing rules
regarding taking gas in kind to adjust royalty valuation
methodologies. The new section deals with the fiscal contract
and oil and gas leases or unit agreements. The existing version
has a provision which authorized the administration to negotiate
new royalty valuation methodologies, "mostly aimed at avoiding
conflict with producers and providing certainty and ease of
administration. That section has not been amended by this bill.
The royalty...valuation issues on the gas side are nonexistent,
essentially, because the state is taking the gas in kind."
9:44:31 AM
REPRESENTATIVE SEATON asked for an example of "how the state
would be working in the unit agreement and why that modification
is here."
MR. DONAHUE said the primary example in terms of the fiscal
contract surrounds the Pt. Thompson leases and unit agreement
and "the disputes between the producers in that unit area and
the state." He said there is a specific article in the fiscal
agreement that "supersedes the language of existing unit
agreements and oil and gas lease agreements for the time
proscribed in that article."
9:45:41 AM
MR. DONAHUE said [paragraph (3)] essentially provides the
authority for the revenue commissioner to include, in a proposed
contract, a provision to elect to take production tax payment by
delivery of gas in lieu of cash. He said [paragraph (4)]
expressly authorizes the state to negotiate to acquire an
ownership interest in the project and "also refers to terms
relating to collateral agreements authorized in [AS 43.82.437]."
9:46:25 AM
MR. DONAHUE said Section 3 of the bill, regarding contract
development, has parallel changes to reflect changes made in the
purposes section and in [AS 43.82.220]. He said line 3 on page
3 refers to terms for modifications to taxes on oil and gas,
which is aimed at overcoming the legislative history of the SGDA
"that suggests that oil taxes were not to be negotiated and
resolved through this contract process." He said that the other
amendment in paragraph (1), referring to credits for investment
in the project, is "aimed at providing authority to the
commissioner of revenue to negotiate credits...within the
context of the fiscal contract that may not be specifically
authorized by the parallel PPT legislation that is enacted.
This is discussed in the fiscal interest findings, and it's a
credit that's designed to give incentives and tax credits to the
producers in return for their investment in the GTP facility."
He said [paragraph (2)] refers to the broadening of the purpose
behind 43.82.220, "taking it beyond the authority to amend just
royalty in-kind related provisions and royalty valuation
provisions, and including the ability to amend/modify oil and
gas lease agreements and unit agreements, and to specify and to
make clear that these agreements are superseded by any
conflicting terms in the fiscal contract." He continued to say
that [paragraph (6)] deletes "the concept of administrative
termination." It deletes and repeals 43.82.445, which outlined
an administrative appeal process for termination of the
contract. The termination regime has been substituted for
contract provisions, he said. "There is an administrative
termination Article 28, and there's also termination authority
under Article 5, the work commitments provision."
9:49:43 AM
CO-CHAIR SAMUELS asked about deleting administrative termination
on line 19. He questioned if this contract "doesn't get over
the hump" and the next administration comes in, "we're not
eliminating that, we're simply broadening that and saying these
tools are now available for contract negotiation...we're not
eliminating saying you have to take the gas in kind, we're
saying you can, and you can have termination other than
administration termination. You can have whatever an
administration negotiates."
9:50:35 AM
MR. DONAHUE said that's correct.
REPRESENTATIVE SEATON surmised that administrative termination
would still be available; "it's just that you're allowing
arbitration as well."
9:51:02 AM
MR. DONAHUE said that is correct. "This would allow the next
administration, focusing on a different type of contract, to
fashion any contractual remedies that it wishes to pursue."
CO-CHAIR SAMUELS asked, "Are there are any provisions, instead
of broadening that-the example that we're given on the
termination--that you're limiting it to what is actually the
contract that is currently negotiated. I would think in every
instance you have broadened it to incorporate what this
administration has negotiated, as well as other options."
9:51:31 AM
MR. DONAHUE said that's exactly correct, and the goal is to
develop a set of statutory provisions that could work "going
forward." He said [paragraph] 7 contains language to provide "a
generic authority and a flexibility to the commissioner of
revenue to fashion various commercially reasonable provisions
that are necessary to implement the complex policy decisions
that are inherent in this bill, and that is the decisions to
attain an equity interest, decisions to make shipping
commitments on the project, and other related provisions." He
said this provision substitutes for more detailed provisions "in
the former version of this amendment." He said it adequately
covers each of the more specific provisions that are outlined
there and provides authority for new and different provisions
that may arise from public and legislative input.
9:53:27 AM
REPRESENTATIVE SEATON asked if it significantly changes the
legal standard for the commissioner's best interest finding.
"No longer does it have to be best interest finding, it's just
an interest finding, in the interest of the state."
MR. DONAHUE said he thinks "best interest" was changed to "long-
term fiscal interest" because that is the finding that the
commissioner is making now with the preliminary fiscal interest
findings and will ultimately have to make with the final. "This
is really, we see, as a consistency amendment. It does change
the word "best interest" to "long-term fiscal interest", so the
type of test that might arise there would be slightly different,
but we would see it as essentially the same."
9:54:56 AM
REPRESENTATIVE SEATON asked if the terms would be the same from
a legal standpoint.
MR. DONAHUE said, "I think the answer is certainly 'necessary to
further the purposes' is arguable a more rigid test, and what
we're trying to establish here is flexibility for the
commissioner to cover eventualities that may arise in the
future, as well as to deal with the number of complex provisions
that have been set forth in detail in the fiscal interest
findings and in the contract. Whether or not "long term fiscal"
is the same as "best interest", you can argue that they're
different. We believe that in this context it's essentially the
same, because it ties in with the findings that are ultimately
necessary for the commissioner to make to have the contract go
forward, to be referred to the governor, and to be referred,
ultimately, to the legislature for ratification."
9:56:03 AM
REPRESENTATIVE CRAWFORD said that when the legislature was
reauthorizing the SGDA in 2002-2003, "a lot of us had a lot of
qualms about it." The line about the best interests of the
state "was one of the ways they sold reauthorization." He said
it seems that "long-term interest" could be construed to mean
that the state could lose money in the short term. He noted
that the change of terms could keep the state from being sued if
something was being done that was not in the best interest of
the state. He added that weakening the act creates trepidation
in him.
9:57:46 AM
MR. JARDELL said, "I think ultimately this is what...the
legislature told the commissioner to make in the preliminary
interest finding." He said it is a consistency change, "but
ultimately it's the legislature that's going to make that
determination." He said the change strengthens the act by
making it consistent with the preliminary interest findings.
9:58:27 AM
REPRESENTATIVE CRAWFORD said if the legislature approves this
contract, "we're not going to have another chance for 30 or 45
years to go back in and change something that we fouled up." He
said there will be no chance to fix it if it doesn't work.
9:59:07 AM
MR. JARDELL said, "Continuing the inconsistency, I don't think,
will address that concern." He said that Representative
Crawford's concerns should be considered by the legislature as
the issue moves forward.
CO-CHAIR SAMUELS said the best interests of the state would be
the long-term interests of the state, and he asked why the
change was made.
10:00:19 AM
MR. DONAHUE said it was changed mostly for consistency, "because
that's what the commissioner is actually finding in the
documents that he is preparing." The best-interest finding is
different than it is in the Department of Natural Resources
context. "In this particular instance, the best-interest
judgment is ultimately made by the legislature," he stated.
10:01:16 AM
REPRESENTATIVE LEDOUX said she is still confused by the
distinction of the language. "If it had originally been in the
long-term fiscal interests of the state, then that would have
sounded fine. But to change it now from the best interest of
the state..." She suggested the following: long-term best
fiscal interest of state.
10:01:58 AM
MR. DONAHUE answered, "I think we didn't intend to trigger too
much concern over this change. We were trying to kind of make a
rational, technical edit here that made it fit with the rest of
the act. There was no intent to undermine the judgments that
have to be made here. But we are trying to make the distinction
between the DNR best interest types of findings and the types of
findings that are being made here by the commissioner of
revenue."
10:02:36 AM
REPRESENTATIVE LEDOUX asked Mr. Donahue if he can understand, as
a lawyer, how taking "best" out of the findings can be
interpreted in court, regardless of intent.
10:03:09 AM
MR. JARDELL said AS 43.82.400 provides that the preliminary
findings and determination be in the long-term fiscal interest
of the state. "It was really a consistency with what the
legislature wrote for the preliminary findings."
MR. DONAHUE referred to Section 4 on the bottom of page 3. He
said it "basically authorizes the attorney general and the
commissioner of revenue to agree to arbitration provisions and,
as part of that agreement, to waive sovereign immunity and other
immunity protections and consent to forms of arbitration that
are different from that applicable under state law, which is the
revised Uniform Arbitration Act, and also, to allow the
enforcement of judgments against the state in other
jurisdictions." He said Section 4 also ties in with Section 17
of the bill, which makes an exception from the Uniform
Arbitration Act for arbitration agreements entered into under AS
43.82 or under the SGDA. He said Article 26 of the fiscal
contract and the accompanying exhibit (C), which lays out the
mandatory dispute resolution process, adopts the federal
arbitration act as the standard, and allows confirming an
arbitration award in another jurisdiction and to enforce that
judgment against the state in that jurisdiction.
10:05:46 AM
REPRESENTATIVE CRAWFORD asked for a clarifying example.
10:06:17 AM
MR. DONAHUE said currently the contract requires arbitration-
mandatory dispute resolution-in every case. The methodology for
invoking that process is a choice between the state uniform act
and the federal arbitration act. He said parties to the
contract agreed that it would be the federal act that would
apply, "and that awards that are entered against the state as a
result of an arbitration can be confirmed and enforced against
the state in another jurisdiction." For example, if there is a
dispute within the contract over how much money the state owes
the producers for upstream cost allowances, and there is an
award against the state that the state doesn't pay, the oil
companies could go to another state with jurisdiction over
Alaska assets, he explained. He said he doesn't know if the
Alaska Permanent Fund could be part of that.
10:08:39 AM
REPRESENTATIVE CRAWFORD asked if the state has the same ability
to hold the oil companies to the same standard.
MR. DONAHUE said he believes the state would be able to pursue
assets of these producers in other jurisdictions, and it may not
have to go through the arbitration confirmation process.
CO-CHAIR RAMRAS spoke of a discussion of forming a Delaware LLC
rather than an Alaska LLC, and he said he doesn't understand
what was just explained.
10:10:12 AM
MR. DONAHUE said the rules for dispute resolution for the fiscal
contract will be separate from the rules under the LLC
agreements. The LLC agreements will adopt Delaware law.
10:11:40 AM
REPRESENTATIVE SEATON asked for other instances of state
sovereignty waivers.
MR. DONAHUE said the state has a standing waiver of sovereign
immunity for most contract tort and other claims. The state has
asked for approval to allow itself to be sued in federal court,
th
he said, and that is dependent upon an express waiver of the 11
Amendment immunity of the state against prosecution in federal
court. He said he is not aware of an example where there's an
express waiver of sovereign immunity to be pursued in other
states, but it is similar to being allowed to be sued in federal
court, which is generally prohibited.
10:12:53 AM
CO-CHAIR SAMUELS requested further information.
MR. DONAHUE said Section 5 of bill has the addition of the
concept of related party to cover the project owner entities.
"These would be the mainline LLCs, the GTP LLCs, and other LLCs
that are formed within Alaska to own and operate different
segments of this project."
10:13:55 AM
REPRESENTATIVE SEATON asked about the confidence that the
definition of related party will not have unintended
consequences regarding other groups, such as contractors
"requesting some other provisions under this contract."
MR. DONAHUE said the concept of related party is narrowly and
tightly drafted "to deal with the entities that appear in the
contract and that are expressly given fiscal certainty rights
and privileges."
10:15:14 AM
MR. DONAHUE referred to Section 6 of the bill. "In its existing
form, it deals only with modifications of the right to provide
notice and timing in the taking of royalty, gas in kind
and...the royalty valuation issues." He said there has been an
expansion of this provision to clarify that the fiscal contract
will supersede all oil and gas leases and unit agreements. On
page 5, he noted that (A), (B), and (C) modifications reflect
the decision by the state to enter into the firm transportation
commitments, "and to elect to take [royalty in kind] for the
life of the contract and to elect to take payment of production
taxes in kind for the life of the contract." He said the
modifications reflect the shipping commitment concept and not
long-term purchase and sale contracts. He said the reference to
"specified period of state's commitment to take its royalty
share in value or in kind does not exceed the term of the
purchase and sale agreements" was deleted on page 5, line 10
because the state is not entering into purchase and sale
agreements; it's entering into shipping agreements. He said,
"Those amendments will be entered into at the open season."
10:18:15 AM
REPRESENTATIVE SEATON noted that Shell approached the state
about buying "all the gas" and asked if this would limit the
state's ability to make that sale.
MR. DONAHUE said, "This does not affect any future decisions by
the state or DNR to enter into arrangements with Shell or any
other entity to help it market its gas." Those particular
decisions might need some amendments to the royalty advisory
board, he stated, and the role of that board will have to be
examined before the purchase and sale agreements commence.
"There should be no narrowing of authority; there may be a need
to come back and clarify them." He said that paragraph (2)
"relates to clarifying the authority for upstream cost
allowances, which are generally not provided for or allowed
under oil and gas leases, to the extent that there is any
difference between the fiscal contract, the terms of the fiscal
contracts, for instance, relating to the state's agreement to
pay for the disposal of impurities. This provision renders the
fiscal contract...preeminent over any other existing oil and gas
lease agreement or unit agreement with respect to those costs."
He said Section 7 deletes the reference to royalty to reflect
the broader purpose of subsection 220.
10:20:47 AM
MR. DONAHUE said Section 8 tries to "nail down and avoid any
conflict with the statutory provisions in Title 38 that may
apply in the context of [royalty in kind] dispositions, and to
make it clear that the standard laid out in 220(a) for
determining the appropriate methodologies for maintaining gas
for in-state uses, for example, are satisfied by the fiscal
contract enacted pursuant to this provision...to avoid
litigation or conflicts with other provisions of Title 38 that
might apply in this instance." He noted it would just be for
gas and not oil.
10:21:52 AM
REPRESENTATIVE SEATON noted a "blanket prohibition on us
requiring any producer to sell any gas, so we're the only gas
supplier, yet we have a 20 percent shipping commitment." He
asked how that relates to "keeping the pipe full and yet
supplying in-state gas, if we're the only suppliers."
10:22:36 AM
MR. DONAHUE said he must defer to the FERC experts. He said he
thinks the state has made allowances for the take-off points.
The state can bargain during the open season, he added, and make
judgments about how much gas it wants to deliver in state. He
said he in not conversant on the relationship between the in-
state FERC tariffs and capacity and the long haul to Alberta.
10:23:13 AM
REPRESENTATIVE SEATON asked if the modification will impair the
ability to meet in-state demands. He expressed concern that
there is no obligation for the producers to sell any gas in the
state, and he requested more information.
MR. DONAHUE said he thinks the theory is to set up a platform
for the legislature to decide whether the in-state needs are
adequately met by the terms of the contract and not so much to
revisit that whole area that is addressed in Title 38, and now
here. "We're trying to provide authority for the general
provisions in the contract and to allow the contract to come
forward to the legislature and then for the legislature to make
a judgment about whether in-state use is adequately protected."
10:25:14 AM
MR. DONAHUE said Section 9 relates to the term of the contract,
and the language deleted at the top of page 6 "refers to the
possible argument that...the known amount of stranded gas in
[the] North Slope is something like 37 trillion cubic feet
(tcf), and the project itself is dependent upon the discovery of
another 16 tcf, and so to avoid any ambiguities about whether or
not unknown gas is considered 'stranded gas', that language has
been deleted." He said it also provided clarification that
suspensions of contract obligations are covered by force-majeure
terms, but not to exceed the 45-year period "in the ultimate
contract." Section 10 relates to project plans and work
commitments, he stated, providing for provisions that "allow the
qualified project plan to be implemented as modified as a result
of the contract--development of the contract under this chapter.
And that relates to provisions in the work commitment section of
the contract." He said the intent was to provide statutory
support for the approach taken in the work commitment section.
MR. DONAHUE explained that Section 11 refers to collateral
agreements of two types, and [subsection] (a) covers "a type of
coordinating arrangement that is under consideration by the
negotiating team," which has not decided on whether to pursue a
coordination arrangement. This arrangement refers to having a
parallel contract that would be with the state and some of the
affiliated entities that would become part of the LLC
agreements, for instance. He said, "This is a matter of debate;
I don't have a concrete example of what type of coordination
agreement might be proposed...Some of these issue may be just
incorporated into the LLC agreements themselves," negating such
an arrangement. He said subsection (b) deals with possible
situation "in that one of the major pieces of legislation that
will also need to go forward on this transaction is the
legislation enacting Alaska Pipe, the public corporation of the
state that would take an ownership interest in the main line
LLCs or in the GTP LLC agreements." He said these collateral
agreements may be in place and available for signature at the
time of the authorization of the fiscal contract. If the public
Alaska Pipe Corporation has been set up, he said, this section
gives the commissioner members of that board the authority to
bind the public corporation. He said for a limited period of
time there is a modified quorum requirement within the public
corporation so that the commissioner members can bind it, and as
new members are appointed, it becomes a majority vote of all
those appointed to date. "So it's a sequencing issue," and it's
a question of how long it takes to get that corporation up and
running. "This allows it to be immediately effective in terms
of negotiating agreements and entering into these LLC
agreements," he said.
10:30:47 AM
REPRESENTATIVE SEATON, regarding subsection (e), asked if it is
limited to the sponsors and their affiliates. He said there has
been talk that the sponsors will not maintain ownership of the
pipeline. "They always sell them off," he stated. He asked if
this limits the ability of others to be part of this contract.
"Do they need to be part of this contract at all? If
ConocoPhillips Alaska, Inc. decided to sell its interest, that
would no longer be an affiliate...or would it become an
affiliate?" he asked.
MR. DONAHUE said the fiscal contract has specific provisions
with respect to the withdrawal of ConocoPhillips Alaska, Inc.
from this contract.
REPRESENTATIVE SEATON said he just meant if Conoco sold its
pipeline interest in the LLC. He stated that big oil companies
generally do not operate pipelines.
MR. DONAHUE said it is very narrowly drafted and intended to
deal with a short-term problem, "and after that the Alaska Pipe
Corporation would be the member with the ownership interest in
the LLC. Whether or not ConocoPhillips could pull out of the
LLC agreements and under what terms, that would be a matter for
the LLC agreement."
10:32:40 AM
REPRESENTATIVE COGHILL asked how many LLCs are contemplated.
MR. DONAHUE said currently there are LLC agreements being
negotiated for the mainline entity, the pipe from the North
Slope to the Canadian border. He said there will be a separate
LLC for the GTP. He noted two others being contemplated for the
transmission lines. So there are at least four LLCs that are
related to ownership of the project. He noted, "On the Canadian
side that ownership structure hasn't been determined, but it
would be some comparable entity, possible a limited liability
partnership formed under Canadian law, which would be formed to
own the Canadian border to the Albert segment." He said there
might be another one formed for the next segment.
10:34:02 AM
REPRESENTATIVE SEATON said he is concerned with the
proliferations of LLCs because LLCs don't pay corporate tax. He
asked if there is a way to make sure corporate taxes are paid
"and it doesn't become a shell game so that we lose the ability
to have corporate income tax paid to the State of Alaska?"
10:34:39 AM
MR. DONAHUE said that's a better question for Dan [Dickinson].
He said the project owner entities, which are these LLCs, are
"for the most part" covered within the terms of the fiscal
contract, "and so their tax liabilities, not necessarily income
tax, but their tax liabilities for property tax and whatever,
are already structured in the deal." He stated that "to the
extent that they're not subject to an income tax, then perhaps
the members of these entities are, then those entities would
have to report under either the skit-that article of the fiscal
contract that deals with corporate income tax liabilities of the
producers and their unitary businesses, or if it's an unrelated
entity that happens to own part of one of the LLCs, then they
would have to pay and record corporate income tax."
10:35:39 AM
REPRESENTATIVE SEATON asked that the administration get back to
the committee on the tax treatment of these LLCs.
10:35:57 AM
MR. JARDELL said, "It is important to clarify that the rights of
any companies to create an LLC is not being changed within this
amendment. Their ability to create an LLC, whether we're in
partnership or if there are any other joint venture or anything
else in this state, is what it is under the statute. This isn't
changing that authority; this is granting us the authority to
negotiate what would be in that LLC."
10:36:37 AM
REPRESENTATIVE SEATON said, "Under the contract, we're saying
that this covers all your taxes, and I want to make sure that we
don't get into a position establishing these LLCs," and if the
legislature decides to change the tax laws so that LLCs have to
pay taxes, due to these entities "basically escaping those
taxes, that the contract does not prevent us from modifying LLC
taxes to mirror corporate taxes."
10:37:27 AM
CO-CHAIR RAMRAS expressed his understanding that the LLC
membership of the producers would flow back to the C-Corp
entities. He said he has some LLCs and "they are extraordinary
vehicles designed very appropriately for exactly what our intent
is here." He said, "Although the LLC may not pay any taxes, the
backstop is that the LLC flows back to BP of Alaska,
ConocoPhillips, ExxonMobil Corporation, and those are C-Corps
that would have their own ownership interest in the LLC."
10:39:01 AM
JIM BALDWIN, Counsel to the Office of the Attorney General, said
Section 12 addresses Payment in Lieu of Taxes (PILT) made on
behalf of taxes that are owed to revenue-affected
municipalities. He said the section "basically provides comfort
that these PILT payments can be paid directly to the
municipalities as their taxes have been paid in the past."
Section 13 begins to implement provisions in the contract,
"although not expressly or completely set out in the contract.
And it has to do with the payment of the impact funds to the
economically-affected communities." He said pages 82-83 of the
fiscal findings outline the impact payments, which equals $125
million over a six-year period during the construction phase of
the contract. He noted a request received "rather late in the
process" from the municipality advisory group to come up with a
method for receiving the funds, and that is what Section 14
does. It establishes an account in the general fund for
receiving the money and a grant program that is loosely based on
the NPRA grant program, he said. He said Section 15 also
implements a request from the municipality advisory group that
its existence be extended throughout the period that these grant
funds would be payable.
10:41:49 AM
CO-CHAIR SAMUELS asked about the terms of membership expiring
all at one time.
10:42:08 AM
MR. BALDWIN said Sections 16 defines related party, and Section
17 clarifies that the state arbitration act is subject to the
terms of the SGDA. Section 19 is a reviser's instruction, and
Section 20 provides for retroactivity of the bill in certain
sections. The grant provisions would not be retroactive, but
all the sections that deal with conforming of the stranded gas
act amendments would be retroactive to January 2004, he
explained. He added that Section 17 has a different retroactive
date because it becomes effective on January 2005.
10:44:08 AM
CO-CHAIR RAMRAS requested from the Department of Law a
discussion of precedents or case law on the terms "long-term
fiscal" and "best".
REPRESENTATIVE OLSON asked if an oil tax passed the legislature,
"what kind of certainty can you give me that the contract that's
delivered to us on July 22 has those same terms in it?"
10:45:54 AM
MR. JARDELL said, "I think it would be somewhat bad faith on my
part to sit here and tell you that without a doubt that if we
get into renegotiating the contract after the public has weighed
in and after the legislature weighs in through that process,
that we would give you a definitive answer at this time what our
position would be at the bargaining table. We do want to wait
until we can consider all the input of the public and all the
input of the legislature. With that, let me restate what, I
believe, the Governor has stated for some time now, that oil
taxes-the rate and the credit and the structure--need to be
decided by the legislature, and that was why the governor
insisted on not putting those into the contract and delivering
that to the legislature, but to do that through a separate piece
of legislation, and then work from there to incorporate that
into the contract. And so our position...has been that the
legislature needs to set those rates, and I believe it is our
intention to take those rates back to the bargaining table and
negotiate from those rates." He said he cannot give a
definitive answer at this time.
10:47:32 AM
CHAIR SEATON requested information on unit agreements and how
they can be modified, suggesting that was skipped over.
MR. JARDELL said he will get back to the committee.
The committee took an at-ease from 10:48:07 AM to 10:49:26 AM.
DAVE VAN TUYL, Commercial Manager, Alaska Gas Group, BP
Exploration (Alaska) Inc., addressed Representative Seaton's
question on the impact of in-state gas sales on the state's
requirement to take out "FT" [Firm Transportation--the
transportation commitment to ship gas to Alberta] given that
there is no specific requirement for the producers to enter into
in-state gas sales contracts. He stated that Article 10 of the
contract is complex and discusses "capacity management-or
management of FT." The provision allows the state to request
each producer to participate in an open season "and acquire that
FT-that capacity-on behalf of the state." It will instruct the
producers to what capacity seems appropriate, and the state will
identify to the producer what in-state capacity the state might
need, he explained. He said an open season is like an auction
with no guarantee of successfully acquiring capacity, but "we
certainly would go to the open season with that intent." It
requires that "we would acquire capacity sufficient to
accommodate state export gas," which specifically excludes any
gas used for instate purpose.
10:52:42 AM
CO-CHAIR SAMUELS asked if ENSTAR Natural Gas Company and Chugach
will bid, "so we know how much to take off?" He continued, "But
if there's no spur line and no way to get it to Anchorage, I
guess, do you have to wait till the next expansion?"
10:53:06 AM
MR. VAN TUYL said open season is where willing buyers and
sellers come together, "so it would be an opportunity for an
outfit like an ENSTAR" to bid for capacity off the line at Delta
Junction, for example, to take gas into Southcentral Alaska.
"At the same time there would be shippers on the line bidding
for capacity into the line, long haul, instate, whatever their
needs and their markets might be." He said it allows the
sponsor of the project to design the project appropriately to
meet the needs of the market, and that is why FERC has come up
with an open season process, "to allow the market place to speak
and to insure that the transportation system is designed to meet
those needs."
10:54:41 AM
REPRESENTATIVE GATTO said ENSTAR doesn't own gas, it's just a
distribution network. "They have had it pretty easy-gas is
right next door," he said. Under the system of shipping gas
from the North Slope, ENSTAR needs a supply of gas, and he asked
if it will need an intermediate party now, and if the state will
sell its in-kind gas to ENSTAR.
10:55:13 AM
MR. VAN TUYL answered that there are owners of the resource and
there are parties that would be interested in providing a
service beyond just the main pipeline into Alberta. He surmised
that "it would make sense for those entities to discuss what
sort of arrangements they might have to be able to access gas to
be able to fill the need that they would have for an in-state
distribution system." He said the answer may be "yes".
10:55:54 AM
REPRESENTATIVE GATTO asked if ENSTAR can be a party in the open
season.
MR. VAN TUYL said he thinks an entity like a local distribution
company would be interested in contracting for service. The
open season rules require that the service that is provided to
the off-take points in Alaska would have to be mileage
sensitive. "The open season process is a way for folks to say,
whether or not they own the gas, to say, yea, I'd be interested
in having that service available."
10:57:38 AM
REPRESENTATIVE CRAWFORD noted that the state will own 20 percent
of the pipeline, and if ENSTAR or another in-state entity wants
to contract for gas for in-state uses, he asked how profits from
the rest of the gas that is shipped to Alberta will be dealt
with. "Who would lose by...taking care of that in-state gas
when the rest is going down to the tar sands?"
10:58:39 AM
WENDY KING, Director, External Strategies, ANS Gas Development,
ConocoPhillips Alaska, Inc., said it is her understanding that
in-state needs are about 600 million [cubic feet] per day. She
added that the state would have the opportunity to choose to
market its gas to any entity. "If you choose to market your gas
to an in-state company...you would let us know that you...would
like to do that," and "we would acquire capacity that's
representative of short-haul capacity," and it would have a
mileage-sensitive rate. "And then it would be just the
commercial arrangements the state chose to make with those
respective buyers as to what price that would be," she added.
11:00:33 AM
REPRESENTATIVE CRAWFORD asked about "the rest of the gas that
went down to the tar sands project." If the state took its gas
off in Alaska, "do we still make some of the money...for the
tariff where the gas went to the tar sands? Once we take gas
off, is that the end of our participation?" he asked.
11:01:09 AM
MR. VAN TUYL offered an example in answering the question: If
the state has access to 20 units of gas, and chooses to make 1
unit of gas available for in-state consumption, at the end of
the open season the state would have 19 units to move the gas
long haul. He added that the intent would not be to require the
state to take 20 units of long-haul capacity if it knew in
advance that it intended to provide 1 unit to the state. Who is
best advantaged in providing in-state gas versus long-haul gas
depends on a number of questions that no one can answer, he
stated, because it depends on the markets from Alberta "as far
as who would make out better." The pipeline rates will be
adjudicated by FERC and will be fair, he said. If the state
asked for gas before the open season, "that's indeed what we
would try to do."
11:04:14 AM
REPRESENTATIVE SEATON asked if the state would still be
responsible for 20 percent capacity, FT, down to Alberta, plus
what it took off instate.
11:04:53 AM
MS. KING said if the state asked for in-state capacity, then its
obligation with respect to that capacity would be for that
amount to that off-take point. The rest would be long-haul,
going through the entire main line, and the responsibility for
capacity would be the amount not used in-state.
11:05:38 AM
REPRESENTATIVE SEATON asked about mileage-sensitive pricing.
MR. VAN TUYL said he is not an expert, but surmised that FERC
sets prices based on the cost of moving gas from point A to
point B, not on the market price of gas.
11:06:57 AM
REPRESENTATIVE SEATON asked if gas prices would have nothing to
do with the total price of the gas, just the shipping costs.
CO-CHAIR SAMUELS said the gas price is based on the market, and
the contract relates only to the tariff. He asked if the gas is
only going one third of the way, the tariff will be one third.
"The price of the gas is not relevant to anything to do with
this contract; the price of gas is what it is."
11:07:56 AM
MR. VAN TUYL answered yes, the price of gas is one matter, and
the mileage-sensitive service is only related to the tariff.
CO-CHAIR SAMUELS asked if the costs are heavier for the first
third of the mileage.
MR. VAN TUYL said he understands that FERC rules specify that
there will be a mileage-sensitive rate for the Alaska portion.
It tries to insure that service to Alaska will be less than the
rate provided to Chicago, for example.
11:08:58 AM
CO-CHAIR RAMRAS drew a distinction between a mature gas economy
like Kenai or Anchorage, and immature economies like Delta,
Valdez, or Fairbanks. It will take years to "ramp up," and it
is expensive to convert from oil to gas. He noted that those
people who could most benefit from lower energy costs, are least
able to make the conversion. He asked how that will work.
11:11:40 AM
PATRICK COUGHLIN, Senior Counsel, BP Exploration (Alaska) Inc.,
said it is the same policy debate the state had in the marketing
of oil in 1977. Policy makers discussed subsidizing in-state
businesses by selling oil more cheaply and whether to have
refineries, he said. "When the state owns its gas it will have
the ability to market the gas at what price it feels
necessary..." He said that is one of the benefits to the state.
11:12:51 AM
CO-CHAIR RAMRAS clarified his concern about a transition to a
gas economy. He noted that Flint Hills takes most of the
state's royalty oils.
MR. COUGHLIN said the contract contemplates the state forming a
marketing entity responsible for making those decisions, and he
would expect the legislature to make guidelines.
11:14:32 AM
MR. VAN TUYL said, "We plan on conducting an initial open
season, approximately two years-ish after entering the project
planning phase, and that would be the initial opportunity for
folks to say, yes, I'm interested in that service." He said
that might be an easier decision for communities with a mature
gas economy. He added that there are multiple opportunities for
other communities, including a subsequent open season and a
potential expansion of the system because pipelines are
commercially motivated to expand if there are more customers.
11:15:57 AM
CO-CHAIR RAMRAS said the tariff "could actually overtake the
cost of a MCF of gas." He added that "the take-or-pay issue as
it relates to shipping commitments in the gas line is a
sensitivity, for me, on behalf of all the immature economies
that would like to make this transition from fuel oil to
presumably more efficient natural gas." If the state commits to
a certain capacity, and then the demand grows in the state, "how
does this get structured for the benefit of Alaskans?"
11:18:47 AM
REPRESENTATIVE GATTO asked if the state still owns the capacity
all the way to Alberta if some is taken off in Alaska.
MS. KING explained the difference between short-haul and long-
haul capacity. "If there is capacity booked in the initial open
season to take to the off-take points within Alaska, that would
be called short-haul capacity, and that means the obligation to
pay the ship-or-pay commitment is just for that portion of
capacity. You don't have to pay for capacity all the way down
to Alberta." The obligation for that ship-or-pay commitment is
directly linked to the short-haul capacity commitment, she said.
For long-haul capacity, the state will be responsible for the
demand charges associated with the capacity booked all the way
to Alberta or other off-take points along the way.
11:21:05 AM
REPRESENTATIVE CRAWFORD asked if "in the open season the
capacity was bid out, and from that point forward if we wanted a
ramp-up, there was going to have to be new capacity in the
line...they would have to have more compression and all that,
and that there would be a new open season at some point to do
that ramp-up. Is that not correct?"
MR. VAN TUYL said if ramping up means more capacity in the
overall pipeline, then yes, that would trigger another open
season to allocate the additional capacity among the willing
buyers of that capacity.
11:22:13 AM
REPRESENTATIVE SEATON asked about page 5, subparagraph (C),
stating that the modification does not impair the ability of the
state to meet demands of state gas. He asked if the
administration feels that an open season will trump the "ramp-up
use of gas in the line, or does this statutory requirement under
(C) mean that the state will have to look at the reasonably
foreseeable demand of in-state gas and not impair the ability
within its contract to supply that demand?" He suggests that it
states that regardless of an open season, the state has to meet
reasonably foreseeable in-state demand.
11:24:22 AM
MR. JARDELL offered to get back to that, but the new language is
an expansion of what the state can do.
CO-CHAIR SAMUELS requested information on how a community will
be able to increase its demands for gas over time.
11:26:05 AM
REPRESENTATIVE SEATON referred to a June, 1, legal services memo
to Representative Ramras and mentioned Section 5, which
discusses related party "and removes the language specifically
included for the...taxes on oil/gas reserves or resource." He
asked if that is included in the bill.
11:27:03 AM
MR. DONAHUE said he thinks that is the language in the long form
of the SGDA conforming amendments, appendix i to the fiscal
interest findings. "In that version of the bill we had language
at the end of what's on page 4 of HB 2004. If you look at
43.82.210(a), what is now going to be re-numbered 9--other state
or municipal taxes or categories of taxes identified by the
commissioner. In that former version we had references to
reserves tax, taxes enacted by initiative, and taxes not yet
imposed by state or municipal governments. Those provisions
were put in there, mostly, out as a matter of full disclosure in
the context of what was in the contract. It was being released
at the same time as a very complex contract. It was our
judgment that the language was probably not necessary to
identify those taxes but that it was in the interest of
facilitating an understanding of the contract that it was put
in, and that language has now been deleted from subsection (9),
but we don't feel there was any substantive change."
11:28:32 AM
REPRESENTATIVE SEATON said the sectional analysis he has from
Legislative Legal Services states that the change in Section 5
does include "remove language specifically included within the
state and municipal taxes for the following. And one would be a
tax on oil or gas reserves or resource. Your reading is number
8, line 22, [which] would authorize the commissioners to
negotiate removal of the gas reserves tax."
MR. DONAHUE said, "Yes, that is our view of what the law would
allow." He added that the commissioner's authority to identify
these different taxes is unchanged.
11:29:39 AM
MR. JARDELL said it was also broadened to more fully allow the
administration to respond to the public if it brings up concerns
on how to go about changing components of the tax structure.
[HB 2004 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 11:30 AM.
| Document Name | Date/Time | Subjects |
|---|